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Yields on Greek bonds reach double digits as default fears mushroom

Greece’s debt woes went from very bad to horrendous on Thursday, sending interest rates on short-term Greek government bonds into the double-digit range as investors recoiled.

Deepening fear of a new chapter in the global financial crisis -- fueled by government debt loads -- also rocked world markets, sending stocks lower across Europe and on Wall Street.

Investors fled the Greek bond market for a seventh straight day after the European Union estimated that the country’s budget deficit in 2009 was even bigger than expected -- 13.6% of gross domestic product instead of the previous estimate of 12.7%. The EU also said the overall budget deficit for euro-zone countries was 6.3% of GDP last year, more than twice what’s supposed to be the limit.

Moody’s Investors Service cut Greece’s debt rating to A3 from A2, and Goldman, Sachs & Co. economists in London warned of worse than that to come: In a report, they said Greece may decide to cut or delay payments to its bond investors as it negotiates a now seemingly inevitable bailout from the rest of Europe.

Any reduction or delay in debt payments would be a default, by any other name.

Stunned investors drove the annualized yield on two-year Greek bonds to 10.1% from 7.78% on Wednesday and 6.35% a week ago.